VAT news

HMRC are consulting on Making Tax Digital

Gareth Bevan22 September 2017No comments

HMRC have launched a further consultation on Making Tax Digital (MTD). They have made available for comment secondary and tertiary legislation on Income Tax and VAT and have also published a document “Making Tax Digital for VAT: legislation overview”.

The deadline for all responses and comments is Friday 10 November 2017.

Primary legislation

The Autumn Finance Bill includes legislation allowing the introduction of Making Tax Digital for VAT. This primary legislation will give HMRC the powers to introduce regulations which will set out the detailed requirements that businesses will need to comply with.

Secondary legislation

In the “Making Tax Digital for VAT: legislation overview” document HMRC confirm that the MTD requirements for VAT will take effect from 1 April 2019. It is also announced that they plan to publish and consult on the draft VAT regulations before April 2018 so that businesses and software developers will have at least 12 months to prepare for the changes.

What we know now

HMRC have also provided more detail on a variety of areas including the following:

Scope – MTD will apply to businesses with a taxable turnover above the VAT registration threshold and cease upon deregistration

Exemptions – the current exemptions that apply to electronic VAT returns will be extended to digital record keeping requirements, e.g. due to religious reasons, disability, remoteness of location etc

Third-party software – businesses in scope of the MTD requirements must use functional compatible software, that is a software program that can connect to HMRC systems via an Application Programming Interface (API)

Digital record-keeping – businesses will be required to preserve their digital records in functional compatible software for up to 6 years

Content of the digital records – the regulations will specify exactly what records need to be held digitally and will include basic information such as business name, principal place of business and VAT number, as well as the VAT account and information about supplies made and received

VAT returns – VAT return information will be generated by extracting the required information from the digital records. This information will contain as a minimum the 9 boxes required for the VAT return, but can also contain specific supplementary information- all of which would be pulled from the digital records.

Full details on the consultations can be found here on HMRC’s website.

The move to MTD for VAT will affect all VAT registered companies so businesses need to start thinking about what system changes they will need to introduce to comply with the requirements.